F012289464 - Banks Find New Ways to East Pain of Bad Loans...

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by David Enrich The Wall Street Journal Jun 19, 2008 Page: C1 Click here to view the full article on WSJ.com --- http://online.wsj.com/article/SB121383327218786693.html?mod=djem_jiewr_AC TOPICS: Business Ethics, Ethics, GAAP SUMMARY: Banks are revising internal accounting policies to mask their troubles. The maneuvers are legal but could deepen suspicion about the sector. CLASSROOM APPLICATION: This article illustrates how a company can change its policies and the resulting impact of those changes on the company's accounting records. Sometimes those actions violate GAAP, but in the situations presented in the article, the changes are perfectly legal. The bad part of these actions is that those changes can present a very different picture of the banks' financial condition to the users of the financial statements. QUESTIONS: 1. (Advanced) What did these companies change that resulted in changes to their financial statements? 2. (Advanced) Why are these changes allowed, even though they cause differences on the financial statements? 3. (Introductory) Do the policy changes result in a permanent change over time on the financial statements? Why or why not? 4. (Introductory) What is the regulatory impact of moving some loans to a new subsidiary? What is the impact on the financial statements? Why are these different? 5. (Advanced) What are the public relations issues involved with these kinds of actions? Should the banks be concerned? Why or why not? 6. (Advanced) What are the ethics of the actions of the banks in this article? What would be the ethical way to handle this reporting? If the reporting as stated is acceptable, should the banks add any additional information to the notes to the financial statement? If not, why not? If so, what should be added? Reviewed By: Linda Christiansen, Indiana University Southeast
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F012289464 - Banks Find New Ways to East Pain of Bad Loans...

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